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Case Highlights

Brattle economists were engaged by Wisconsin Public Service to estimate the likely changes in energy and capacity prices as a result of projected coal plant retirements and environmental retrofits in the MISO region and the rest of the United States.

Background

Background

Coal-fired power plants in the U.S. are subject to existing and emerging environmental regulations by the U.S. Environmental Protection Agency (EPA) to reduce emissions of various air pollutants as well as impacts on aquatic life and environment. In order to comply with these regulations, Wisconsin Public Service Corporation (WPS) submitted an application to retrofit its Weston 3 coal plant by 2017 with the ReACT technology that was projected to be more economic than other compliance options such as retrofitting with SCR and FGD control technologies, or shutting down the plant. This proposal was challenged before the Wisconsin Public Service Commission on the grounds that the WPS’ assumed future market conditions were biased and that shutting down the plant and relying on market purchases would be more economic than retrofitting the plant.

Brattle’s Role

Experts from The Brattle Group, Metin Celebi and Frank Graves, were retained by WPS to estimate the likely changes in energy and capacity prices as a result of projected coal plant retirements and environmental retrofits in the MISO region and the rest of U.S. Messrs. Celebi and Graves have been publishing influential studies on the impacts of EPA regulations and changing market conditions on the economics of operating vs. retiring the coal-fired plants. Using these retirement projections and a model of wholesale markets in the MISO region, the Brattle experts estimated the impacts of retirements and retrofits on the likely future market conditions for energy and natural gas prices. In addition, Brattle experts reviewed the projected reserve margins in the MISO region with and without the coal retirements to evaluate the likely changes in capacity prices in the MISO region after 2016.

In two testimonies and a hearing in January 2013, Dr. Metin Celebi concluded that the price feedback effects on the market from pending retirements and environmental retrofits are likely to push electricity and natural gas prices up by a few dollars per MWh. In addition, Dr. Celebi found that the market price of long-term capacity in the MISO region will likely increase in response to coal plant retirements in the region. Both of these findings would tend to improve the economics of retrofitting the plant relative shutting down and relying on market purchases for energy and capacity.

The Outcome

In April 2013, the Wisconsin Public Service Commission approved WPS’ application to install the ReACT technology at its Weston 3 coal plant.